Question

(This problem is not related to the above problem) Last year Builtrite had retained earnings of $140,000. This year, Builtrite had true net profits after taxes of $65,000 which includes common stock dividends received of $10,000, and also paid a preferred dividend of $35,000. What is Builtrite’s new level of retained earnings?

Answer 1

Answer:

Closing/ New Level of Retained Earnings = $170,000

Explanation:

As for the provided information,

Retained earnings opening balance = $140,000

Net Profits after taxes = $65,000

This balance of net profit which is after taxes includes the dividend earned, which shall be the part of income, as the dividend earned is part of our income in case not reduced from carrying value of investment, as in case of investment in any company's stock for less than 20% share.

Also the preference dividend paid tends to reduce the net income to be added to retained earnings.

Therefore, closing balance of retained earnings:

= $140,000 + $65,000 - $35,000 = $170,000